It is a fact that many of the life insurance and health insurance policies that are in force today are not the best suited for the policyholders, and often the policyholder is unaware of this. Insurance in India is primarily sold through insurance advisors and, though things have improved, incentives in place are such that mis-selling of inappropriate insurance policies continue to happen rampantly.
In this context, it is prudent for individuals to conduct an insurance audit every 2-3 years. An insurance audit is an objective evaluation of one’s current life and health insurance coverage to ensure that the current policies match the policyholder’s insurance needs.
Why insurance audit?
Circumstances change as life progresses and this directly impacts the your own insurance requirements as well as that of your family. Also, insurance is a complex and competitive field and over time innovative products get introduced in the market which may serve your needs better. Also sometimes a detailed review of your life and health insurance may uncover some major issues with your existing policies - such as an over-expensive coverage, inactive policies, missing features, etc.
How to do an insurance audit?
An insurance audit entails asking yourself a few important questions directly impacting your insurance needs. The answer to those questions will help you determine if you need to take a closer look and consult an advisor for a detailed review. Life insurance and Health insurance form the key to your financial plan and should definitely get audited.
Key questions for Life insurance audit:
1. Are your existing policies in force and your nominees updated correctly in the policy?
It’s a pretty simple exercise but ensures that the administrative side of things are taken care of.
2. Do you know the purpose of the life insurance policy you currently have?
This will help you realise if you clearly understand why you bought the insurance policy that you currently hold. If you are not able to clearly articulate the reason you have your existing policies, then you need to take a detailed look.
3. Are you getting the best coverage possible for the premiums you pay?
Thanks to online insurance broking sites, it is very easy to find out the best available rates for term life insurance for your age. A simple check will tell you if you are spending any extra money here.
4. What is your insurance coverage and do you know if you need to increase or decrease it?
As a thumb rule your insurance coverage should be 10 times your income. Use this as a starting point to determine if you are under or over insured.
5. What are your three main goals and priorities for your family and do your insurance solutions adequately accomplish them?
This is a forward looking question which will force you to prioritise things you want the most for your family, put a value to the monetary support you may require and realize for yourself if your current insurance coverage is sufficient or requires changes.
6. Consider taking riders like Disability, Accidental death
If you can afford to, then consider taking additional riders with your insurance policies as they provide additional benefits in case of specific circumstances and are well intended.
Key questions for Health insurance audit:
1. If you are employed, do you have personal health insurance coverage, in addition to that provided by your employer?
If not, please get it as it is important that you have one. The insurance coverage provided by your employer will be available only till you remain employed there and as you grow old it will become more expensive to get personal health insurance later.
2. Does your health insurance policy include names of your spouse and children?
Personal health insurance policies allow you to include names of your spouse and children under the family plan. If you have recently got married or have had a child ensure that you have updated their details in your plan.
3. Do your parents have health insurance?
Please check if your parents have health insurance. If not, then you should evaluate getting them insured depending on their age and current health circumstances. As a starting point, consider using online insurance sites to understand options and possible cost.
4. Is your health insurance coverage sufficient?
Cost of healthcare in India has gone up rapidly over the last 5 years and is expected to continue growing. The coverage that may have looked sufficient two years ago may soon not be enough. Evaluate your healthcare coverage factoring in the expected cost inflation - what may appear as being over-insured may be the right amount looking at it 5-10 years down the line. For additional coverage, consider products like super top-up coverage which provides affordable coverage but after initial deductibles.
5. Consider taking riders like Critical illness
With growing instances of serious illness like cancer, stroke etc. due to changing lifestyle and stress, consider taking additional riders like critical illness with your health insurance policy as they provide additional support in case of specific situations and are well intended.
Conclusion: Just like you plan your finances, review your key expenses and adjust them from time to time, even your insurance coverage which requires due consideration from time to time. An insurance audit today can help you and your family save lakhs in the future by identifying and making timely modifications to your life and health insurance policies.
The author, Amar Choudhary is CEO, Finaskus.